What's Your Practice Worth?

The over-estimation of value is especially true in professional services firms where the most prized assets ' the partners and other professional staff ' ride up and down in the office elevators each day. Ironically, this is also the reason why valuations are often lower than expected. Oftentimes it is much easier to value companies that manufacture or sell hard assets (i.e., products and equipment) than it is to value the goodwill of a law firm.

Law firms, because of caseload analysis and the project-oriented nature of their work, are notoriously hard to value, even more so than accounting firms and other professional service industries where there is an established schedule of work for at least a 12-month period. Ask 10 business valuation experts their opinion of a law firm's value, and you're likely to get 10 different answers. However, assuming the proper utilization of generally accepted appraisal standards, those answers should be somewhere in the same ballpark. Law firms may have little in the way of hard assets and may not be hired or engaged until needed. In addition, consider the fact that until relatively recent times, quantifying the value of long-standing and loyal law firm clients wasn't allowed, as courts had decided that clients could not be bought and sold or valued as “property.”